College’s payoff is declining — unless you have financial aid

College is an outstanding investment, with an annual rate of return many times that of stocks and bonds. But if you pay the sticker cost, it’s getting worse, as tuition has exploded in recent years:

But this chart leaves two things out. For one thing, as the Hamilton Project’s Adam Looney told me, it only focuses on the benefits of college to full-time workers. But the portion of the working population that works part-time has been declining — especially among people who haven’t graduated from college.

That means the college wage premium is much bigger if you take into account the fact that people without college degrees are less likely to get full-time jobs. The bigger problem, though, is that the return on investment here is estimated using the sticker price of college, not the net price once one takes financial aid, both federal and private, into account. What happens if you adjust the data to account for these factors? The decline goes away:

There was a large spike in the returns to a public degree and a smaller spike in the returns to a private degree during the dot com bubble, but generally the returns have stayed roughly constant over the past fifteen years. In 1996-7, the returns to a public degree were 1050 percent; in 2009-2010, it was 913 percent. The drop for private schools was even smaller, from 396 percent to 383 percent. Why is this happening, if tuition is spiking? Largely because financial aid has increased almost quickly enough to make up for that. So for the typical aid recipient, college is as good a deal today as it was in the mid-1990s.

Of course, not everyone is the typical aid recipient. If one isn’t eligible for financial aid and has to pay the whole sticker price, college is still worth it, but its value is declining year by year. But if one is eligible for above-average aid, college is an even better investment than the above chart suggests. So the past fifteen years have made college a worse (but still excellent) deal for the rich and better deal for the poor.